Keep in mind that the leverage limit also helps to mitigate the risk of a REIT having to liquidate a major asset in its portfolio, at the bottom of a property market cycle, in order to service or repay debts. Also, note that having a higher leverage limit can make the REIT more flexible in optimizing its capital structure. In light of recalibrating the leverage limit, one option is to use a combination of leverage limit and minimum interest coverage ratio or “ICR.”

Remember that interest coverage ratio (or “ICR”) is a measure of a REIT’s ability to service its debt obligations from regular sources of income. Additionally, if the use of a combination of leverage limit and ICR is appropriate, one possible approach to recalibrate the leverage limit is to allow REITs to take on more debt only if they are able to meet a minimum ICR.

Note that considering the REITs’ debt levels and their ability to service the debt obligations on an on-going basis are among the safeguards against over-leveraging. Moreover, a number of REIT jurisdictions have imposed safeguards that are tied to leverage ratio (i.e. debt-to-asset ratio, which is a measure of how well a REIT is capitalized) or interest coverage ratio (or “ICR”, which is a measure of a REIT’s ability to service its debt obligations from regular sources of income).

Note that in the case where the offer of REIT Bonds is made in or accompanied by an offer information statement in which a person is named as the issue manager to the offer, the offer information statement shall not be issued unless the person has given and has not, before the lodgment of the offer information statement with the Authority, withdrawn his written consent to being named in the offer information statement as issue manager to that offer; and there appears, in the offer information statement, a statement that the person has given and has not withdrawn his consent.

It is a fact that the ICR can be defined as earnings before interest, tax, depreciation, and amortization (EBITDA) (excluding effects of any fair value changes) divided by interest expense. What is more, is that REITs are not required to disclose both their leverage ratios and ICRs in interim result announcements and annual reports; nonetheless, some REITs already practice this.

Note that in the case where the person making the offer is not the Manager and the Manager is controlled by the person making the offer, the offer information statement shall be signed by options II and III from the question above. Further comprising, if the amount of the REIT Bonds being offered can be increased, such as by the exercise of an underwriter’s over-allotment option or “greenshoe option”, the exercise period of and the amount under that option must be stated.

To emphasize, although the aggregate leverage of a REIT may be raised to a maximum of 60%, the manager in the case of depreciation of the value of the real estate assets arising from circumstances beyond his control should not incur additional borrowings. The aforementioned rise in the leverage limit would provide greater operational flexibility for the REIT. On the other hand, if the leverage limit is too high, it could change the risk profile of REITs.

Despite the fact that MAS approves both internally and externally managed REITs in Singapore, most people think that only externally managed REITs are allowed because of the situation that most emerging REITs in the country are handled by external managers. Regardless of the potential risks and conflicts of interest, Singapore’s REIT sector has gained a broader investor for the past years up until now.

Keep in mind that the board of directors of a REIT manager is (also simply referred to as “the Board”) must be strong and independent to deliver its responsibilities effectively. To recap, the Chairman of the Board cannot be an executive director or a person who is a member of the immediate family of the Chief Executive Officer (“CEO”). Likewise, it is important to establish strong corporate governance standards for REIT managers, given the inherent conflict of interests faced by a REIT manager.

Note that the majority of independence is an invariable necessity among REIT managers. This is to ensure its effectiveness as the sector-in-charge. Apart from that, in the context of a business trust that is stapled to a REIT, a director of a trustee-manager can be appointed as an independent director of the REIT manager. At present, not difficult for unitholders to convene an extraordinary general meeting to obtain a simple majority approval that is needed to remove a REIT manager.

Providing objective judgment on whether transactions proposed for the REIT are in the interests of unitholders is not a condition that has to be satisfied by the independent director; but rather a responsibility of the Board. By the same token, a controlling shareholder will have the right to appoint the directors of a REIT manager, if it is also a unitholder of the REIT.

Bear in mind that the AC should also be fully-independent, and it also has a significant purpose in reviewing material functions that a REIT manager may have outsourced to the Sponsor. Also, remember that there are cases when directors, whose responsibilities in the Sponsor’s group relate only to control or back-office functions, become a member of the REIT manager’s AC.

Please note that in such cases as the question above, the AC shall comprise a minimum of three other independent directors. Furthermore, the director from the Sponsor will be required to abstain from voting on any matter in which the Sponsor has a direct or indirect interest. You must also be cognizant of the fact that directors from the Sponsor may provide useful insights from their experience and add value to the AC.

Remember that the factors I, II, and IV shall be disclosed in the REIT’s prospectus, as well as any circular seeking unitholders’ approval for subsequent revision of fees. Regarding this matter, it is also important to view the fact that the interests of a REIT manager and its shareholders may potentially conflict with those of the unitholders, especially since the REIT manager would enter, on behalf of the REIT, into related party transactions that involve the shareholders of the REIT manager or their subsidiaries.

It is also emphasized that the REIT executive will have to disclose such remuneration in the REIT’s annual report and explain why such an arrangement would not result in a misalignment of interest between the REIT manager and the unitholders, or the mitigating measures instituted to address any potential misalignment.

It is pointed out that under such cases as the question above, the REIT manager needs to satisfy that this arrangement does not compromise the effective governance and oversight of the REIT portfolio and REIT management activities. In either case, the REIT manager is required to procure a Professional Indemnity Insurance (“PII”) or, in lieu of a PII, a Letter of Undertaking (“LU”) from the REIT manager’s parent company, where the latter has a satisfactory financial standing.

Furthermore, each of the minima of three full-time representatives must have at least five years of relevant experience on the REIT. Together with this matter, the CEO and executive directors of a REIT manager are expected to be fully committed to its operations, in order to provide effective managerial oversight.

Keep in mind that options I and III from the question above are not positive results from greater transparency of the REIT’s remuneration practices, but are rather negative. In addition, greater transparency of the REIT’s remuneration practices may not be very relevant for the unitholders of the REIT, as such remuneration is borne by the REIT manager and not the listed REIT.

Underscore the fact that options II and III are only applied to REITs on a comply-or-explain basis, similar to the requirement for companies listed on the Singapore Exchange. More specifically, the disclosure of the remuneration of at least the top five key executive officers of the REIT managers, on a named basis, will be presented in bands of S$250,000.

It should be borne in mind that the first annual report after the requirement takes effect is the document for existing REITs. Meanwhile, any circular seeking unitholders’ approval for subsequent revision of fees is the document for both existing and new REITs. The implementation of the aforesaid documents is done in light of the case that investors should have more clarity on the reason for charging various types of fees.

Recall that disclosures on performance fees are also required to be accompanied by the fee computation methodology and the justification of how such methodology takes into account unitholders’ long-term interest. Thus, the disclosures must be clear, reasonable, informative, and meaningful.

Be aware that compensation paid to directors and executive officers of a REIT manager in the form of shares in the controlling shareholder group may result in misalignment of interests as it creates an incentive for these individuals to prioritize the interests of the controlling shareholder over those of REIT unitholders.

Emphasize the fact that “property development activities” should not include activities that will not affect a REIT’s ability to receive or be entitled to rental income. Conjointly, these do not include refurbishment, retrofitting, and renovations. REITs can also be permitted to exceed the 10% development limit and undertake property development activities up to 25% of its deposited property, only if certain specifications are met.

Note that it is not the AC that should be flexible so as to cater for the different sectors; but rather the review interval. On the side, the terms of a PMA should be taken in totality. For example, if the PMA imposes significant penalties for the removal of a property manager (even if for cause), the PMA would still serve to entrench the property manager.

Bear in mind that Singapore’s REIT regime was established to provide investors with an opportunity to gain exposure to real estate assets, with the diversification of risks through a pooling arrangement. In keeping with these objectives, REITs have to observe the Property Funds Appendix [“PFA”] of the Code on Collective Investment Schemes [“CIS Code”].

It must be understood that the AC must comprise only non-executive directors, the majority of whom, including the AC Chairman, should be independent. Observe the fact that there are instances where the non-independent director of an AC includes a nominee from the Sponsor’s group. In such cases, it must be borne in mind that the nominee’s responsibilities in the Sponsor’s group relate only to control or back-office functions such as audit, finance, compliance or risk management.

Be reminded that the “Nexus” can also be established between the two entities if both are in the same industry or one provides ancillary services to the other (not necessary for the non-REIT entity to be the sponsor or sponsor-related). Beyond that, the refinement to the “nexus” requirements will accommodate more business models, particularly nonsponsored REITs.

Highlight the fact that a REIT may also provide a forecast DPU when making an acquisition. The forecast DPU is derived based on a set of assumptions. While the assumptions may be reasonable at the time the forecast was prepared, they may not hold over the period of the forecast. As such, the actual DPU may deviate from the forecast DPU.

Draw attention to the fact that following the REIT’s listing, it is not uncommon for the REIT to enter into service agreements or property transactions with the Sponsor or its subsidiaries. Because of this structure, REITs have over the last decade become an investment option that delivers tax-efficient, stable, and regular returns for investors. Also, Singapore is now one of the largest REIT markets in Asia.

Underline the fact that the holder of a capital markets services license for REIT trust management shall have a Board which satisfies requirements such as the participants of a REIT must have the right to vote on the appointment of directors to the Board, and at least one-third of the Board shall comprise independent directors.